Outer House dismisses $210m damages action alleging conspiracy to breach fiduciary duty

Robert Kidd raised the action against eight defenders. These included five entities or individuals involved in the Lime Rock Group, as well as Ledingham Chalmers LLP and two partners in that firm.

The case was heard by Lord Clark. A separate action against Burness Paull LLP, the predecessor firm of which had employed the solicitor said to have committed the breach at the material time, was previously settled in 2018. 

Acted for both sides 

The pursuer was formerly the sole shareholder of ITS Ltd, a company incorporated in Scotland. In 2007 he decided to sell part of his shareholding and employed two new directors. In February 2008 he instructed Paull and Williamsons LLP, which later merged with another firm and became Burness Paull, to represent the company’s interests in implementation of any agreement reached with a proposed investor. 

In due course, the Lime Rock Group expressed an interest in purchasing shares in ITS. In September 2009, the pursuer sold part of his shareholding to Lime Rock Partners V, LP, the third defender. The company went into administration in April 2013 following a deterioration in its operational performance. 

Lime Rock had been clients of P&W for some time prior to 2009. In particular. they were clients of Mr Kenneth Gordon, the solicitor who had acted for ITS in the negotiation, a fact the pursuer was not aware of at the time. The pursuer raised a commercial action against P&W and BP in 2015, contending there had been fraudulent misrepresentation, breach of fiduciary duty, and professional negligence. 

In that case, the pursuer alleged that Mr Gordon arranged for solicitors from Ledingham Chalmers, the sixth defender, to “front” the negotiations on behalf of Lime Rock to conceal the fact that he was advising both sides. The defenders in that action accepted that the actions of Mr Gordon had caused a conflict of interest and reached a settlement with the pursuer in February 2018. 

In the Lime Rock action, the pursuer averred that the eight defenders were jointly and severally liable for his loss. They were all aware that Mr Gordon was acting in breach of his fiduciary duty and conspired to facilitate that breach by deceiving the pursuer into thinking that each side was being independently advised. 

The first to fifth defenders submitted that the action was incompetent, as the pursuer had received full satisfaction for the loss he claimed to have suffered via the settlement agreement with Burness Paull. As a result of this, his cause of action had been extinguished.  

The sixth to eighth defenders made similar submissions on satisfaction of loss, and further submitted that there was nothing in the settlement agreement that suggested what the pursuer agreed to accept was in partial satisfaction only of his claim for damages. 

Full and final settlement 

In his opinion, Lord Clark said of the settlement agreement the pursuer had reached with BP: “There are no averments that the agreed sum gave a discount for any particular matters, nor are there any averments of facts or reasons known to both parties supporting the fixing of a sum less than the full measure of the pursuer’s loss. Subjective intentions are of course irrelevant.” 

He continued: “The settlement agreement makes clear that it is not just a full and final settlement of the action but that it includes release of claims in any way related to the proceedings or their underlying facts.” 

Applying this interpretation to the present case, he said: “The meaning of the settlement agreement is that the pursuer reached a full and final settlement, with one joint wrongdoer, of the loss claimed in the action against that joint wrongdoer. On the basis of [previous case authority], that precludes an action against other joint wrongdoers for that same loss.” 

He concluded: “The pursuer avers that the present action is ‘based on a different legal basis to that advanced in the first claim’. However, if the present defenders are jointly and severally liable for the pursuer’s loss, but that loss has been satisfied, then no claim remains.” 

For these reasons, the pursuer’s claim was dismissed. 

Acted in concert 

Lord Clark also felt it appropriate to address the other issues raised by the case, namely relevancy, specification, and prescription. Addressing relevancy and specification, he summarised: “The pursuer has in this case made sufficient averments of the kind that Lord Tyre in the earlier case properly identified as necessary for a relevant case based upon fraudulent misrepresentation.”

He continued: “The defenders’ conduct did not prevent P&W or Mr Gordon giving the advice the pursuer claims should have been given, but they are all said, in effect, to have acted in concert to reach that result. I therefore conclude that the argument for the defenders that the pursuer’s case here is irrelevant for the same reasons as in the earlier case falls to be rejected.”

Regarding prescription, he said: “I reject the defenders’ position that as knowledge of the pretence was known to the pursuer in 2014 when the P&W/BP action was raised, that means the action has prescribed; the issue here is about the conduct of the present defenders.” 

Lord Clark therefore determined that, had the case not been dismissed, these issues would have been determinable at a proof before answer.